The Only Two Words You Need To Watch For At Tomorrow's ECB Press Conference

Tomorrow, the ECB will announce whether or not it intends to hike rates again in the month of May, after doing so in April.

It's expected President Jean-Claude Trichet and his team will not, even though evidence is piling up inflation is starting to hit the region's consumers and easy money is blowing bubbles in some real estate markets.

Everything, therefore, is about signaling what will happen in June, and Trichet will do that with two words:

Strong Vigilance

Societe Generale economist Klaus Bader expects the ECB to switch its language to strongly vigilant, and therefore signal another rate hike in June, rather than the July date markets appear to be expecting.

The consensus, and market pricing, is for a rate hike only in July. We suspect this may prove wrong. Our belief is that the firm prospect of substantial upward revisions in the ECB's published baseline inflation scenario at the June meeting will be enough to effectively take the decision at the May meeting to implement another 25bp rate adjustment in one month's time. Hikes at the meetings with new Projections rather than one month later would also mirror the previous tightening cycle. Beyond the June meeting, however, we expect a 2.5 quarterly, rather than bi-monthly, rhythm to rate hikes.

So if we see a switch from "monitor very closely" to "strong vigilance" we'll get another rate hike in June.